Corporate Boards Must Evolve to Stay Relevant

Sides of two glass building towers

Sides of two glass building towers

Written by Raj Gupta, former chairman and CEO of Rohm & Haas and currently chairman of both transportation technology company Aptiv and specialty materials company Avantor, this opinion piece was published in the Philadelphia Inquirer and focuses on the need for companies to evolve in order to stay relevant. According to Gupta, the biggest challenge facing many board members is adapting and staying ahead of the rapid change.

In order to help build better corporate governance models, Gupta turned to academia and recently helped establish the Raj and Kamla Gupta Governance Institute at Drexel University’s LeBow College of Business.

Serving on a public corporate board has long been considered a sweetheart perk. But the breakneck change brought on by digital technology has upended every industry and placed more pressure on board members to become more proactive rather than reactive. And since the governance model that worked well in the industrial age is not well suited for the information age, the biggest challenge facing many board members is adapting and staying ahead of rapid change.

Companies that can’t stay ahead of the curve will be in trouble. A key to success is the ability to focus on core strengths. Big, sprawling conglomerates with disparate business groups are particularly vulnerable because the added complexity is the enemy of speed.

Even before the rapid pace of change accelerated, few companies over the last few decades could deliver sustained growth and value. Since the end of 1992, half of the 30 companies in today’s Dow Jones Industrial Average have failed, fallen out of the index, or had their predecessors acquired. The same holds true for the S&P 500 Index in which hundreds of its constituents have come and gone — and in some cases come back — over the past 25 years.

Over the course of two decades, I have served on a number of public and private corporate boards and was fortunate to lead Rohm & Haas for 10 years. In my experience, the most successful CEOs have a transparent relationship with their boards.

I watched Ed Breen quickly take firm control of Tyco International after a corporate fraud scandal left it on the brink of bankruptcy. Meg Whitman transformed Hewlett Packard by splitting up the company, shedding assets, focusing on its server and networking business and creating a world-leading printing and PC company. Vanguard has grown into a behemoth by staying focused on its core business of low-cost, diversified investing and not chasing exotic strategies. At Delphi/APTIV, two successive CEOs in close collaboration with the board have created two leading global technology suppliers to the automotive market since emerging from bankruptcy in 2009 while generating $35 billion in shareholder value.

Those experiences motivated me to make a naming gift to support Drexel University’s Raj & Kamla Gupta Governance Institute. The Institute is pursuing a new approach in addressing and shaping the changing landscape of corporate governance at for-profit and nonprofit organizations by bringing together practitioners and key stakeholders for candid dialogue.

To successfully navigate this complex and rapidly changing environment, today’s effective boards must deepen their engagement on matters ranging from corporate strategy, disruptive technologies, talent, diversity, cyber-security, political and economic threats, regulatory complexity and corporate culture.

At the same time, shareholders’ expectations regarding directors and board performance are also increasing. As a result, shareholder activists, institutional investors, governance experts, legal practitioners and the media frequently shine a critical light on companies’ policies on board performance, tenure, compensation and diversity.

Although progress has been made, there is still a lot of work ahead. That work begins in our business schools, where tomorrow’s leaders are trained.

Interestingly, many areas of research regarding the board room remain underserved. To mention just a few: how do CEOs and their boards interact with each other and is relevant information shared? Are directors focused on the right issues that affect the company’s long-term performance?

There is a need for an academic research-based governance framework that engages and educates industry practitioners and plays a role in shaping the future of governance practices. Drexel plans to fill that void.

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